Still Finding a Balance
Pork producers know well that feed prices have skyrocketed in recent years. USDA has forecast the average price for the 2011 corn crop at a record $6.40 per bushel, up $1.22 from 2010’s record. The primary cause of higher prices is the growing use of corn to make ethanol. U.S. feed grain available for livestock and poultry feed trended higher until 2005 and has dropped ever since.
The amount of grain (see graph) that will be fed to U.S. livestock and poultry this year is less than the previous year for the fourth consecutive year. Less feed means less meat and higher prices. Until the feed supply increases, the U.S. livestock herd and poultry flock will remain under pressure.
Another Profitable Year Likely
The average slaughter-hog price on a live-weight basis in 2011 was just over $66 per hundredweight — a new record. Iowa State University put the breakeven live-hog price near $65 per hundredweight — also a new record. Thus, the typical pork producer turned a small profit for the second year in a row.
Most forecasts project increased hog slaughter in 2012, and with slaughter weights gaining 1 pound a year, production could be 2 percent higher than in 2011. U.S. population will be slightly larger, pork exports should grow a bit, and there will be less competing meat. Add it up and 2012 hog prices could average near 2011’s. If feed prices hold steady, this could be another year with modest profits.
Spot Market Days Are Limited
For over 20 years, pork producers have been signing long-term marketing contracts with packers. More hogs on contract means fewer hogs sold on the open market. Since USDA initiated mandatory price reporting in 2001, it has provided detailed daily data on how packers buy hogs. The first MPR data showed 16 percent to 18 percent of barrows and gilts were sold on the spot market or negotiated sales. That percentage has steadily declined.
By fall 2011, roughly 4 percent of the barrows and gilts that packers bought were spot market purchases, and that number will likely continue to drop. The negotiated price is used as a base price in most long-term hog contracts. Soon, however, negotiated sales will be too few to serve as the foundation to price hogs. The most likely alternative will be to use the pork cutout value.